China frets over rising capital inflow pressure

Capital inflows are placing big pressure on China this year, as domestic companies and banks repatriate large volumes of foreign currency, a senior official said in remarks published on Monday.

Guan Tao, who heads the international balance of payments department at the State Administration of Foreign Exchange (SAFE), said that ultra-low interest rates in the United States were also fuelling a global dollar carry trade that was channeling more funds to China.

But rather than point his finger at foreign speculators, Guan suggested that Chinese players were the main drivers of these flows, looking to take advantage of both yuan appreciation and low U.S. rates.

Tighter credit controls are prompting domestic companies to raise funds from overseas and then repatriate them, which increases capital inflows, Guan was paraphrased as saying by the official China Securities Journal.

Guan said Chinese banks were also partly responsible, as they were repatriating foreign reserves to replenish their capital bases.

The mounting inflows could undermine economic stability and required attention from regulators, he said.